Strategic analysis 3: Resources & capabilities DSGM (Lecture 3.1) Dr Elvira Bolat C113, Christchurch House, Talbot campus ebolat@bournemouth.ac.uk @Elvira_Mlady
This week: Outline Catch-up! Lecture 2.2: Micro-environmental analysis – Understand the importance of market segments in marketing strategy
Lecture 3.1: Resources and capabilities – – – – –
Compare industry v. resource-based views Define (strategic) capabilities and its elements Review how (strategic) capabilities can enable building a competitive advantage Discuss techniques to assess strategic capability Discuss how (strategic) marketing capabilities can be developed
Lecture 3.2: History and culture – Understand importance of history – Define culture – Explore strategic drif
Summary for the week Next week’s seminar preparation
What is a Market Segment? A market segment is a group of customers who have similar needs that are different from customer needs in other parts of the market.
Role of market segmentation in strategic marketing Creates value opportunities – Allows an organisation to match its resources to customers requirements – May identify new segments not identified by customers Segments Value opportunities Capabilities/segment match Targets Source: Cravens & Piercy (2006)
Positioning
Segmentation
Persona Development Approach to Segmentation
Strategic analysis of segments Determine attractiveness of each segment – Customers, competitors, positioning, financial & market attractiveness: Segment
Sales Costs Margin Market share Future growth Business strength Segment attractiveness
X
Y
Z
ÂŁ10mill 4 5 60% 10% H
15 10 6 20 -5% M
5 3 8 10 25% L
H
L
M
From market segments to Strategic segments • Strategic segments require distinct value networks to deliver differentiation • 3 V’s model (Value): 1/ Valued customers – who should we serve 2/ Value proposition – what to offer 3/ Value network – how to deliver the value proposition to the customer (Hwang et al. 2004)
Resources & capabilities Strategic Capabilities
“At the heart of strategy lies a need to assess critically both the organisations resource portfolio (ofen referred to as its strengths and weaknesses) and the environment it faces (its opportunities and threats).” Hooley et al. 2012
“The essence of developing a marketing strategy for a company is to ensure that the company's capabilities are matched to the competitive market environment in which it operates, not just today but into the foreseeable future.” Hooley et al. 2012
Industry-based • 1970-1990s • Main contributors: Porter, Levitt • Market-oriented view
Resources-based • Before 1970s, 1980s - … • Main contributors: Wernerfelt, Barney, Hamel, Prahalad, Grant, Day • Organisation-oriented view
The organisation
The organisation
Outside in - What does our analysis of the world tell us we need to do?
Inside out - What competences do we have that we can promote to the world?
Resource Based View Resource-Based View Relies on resources Tangible
Intangible That must be Immobile
Heterogeneous And have VRIN attributes to become VRIN Resources That provide
Competitive Advantage Barney, 1991
Resource-based view 1. The differences in performance amongst companies is best explained through differences in the firm’s assets and resources Hunt & Derozier, 2004 2. The resource-based view (RBV) of strategy asserts that the competitive advantage and superior performance of an organisation is explained by the distinctiveness of its internal capabilities Johnson et al., 2017, p. 97
Defining (strategic) capability? “Strategic capability refers to the distinctive capabilities (resources and competences/capabilities) of an organisation that contribute to its long term survival or competitive advantage� Johnson et al., 2017
Resources and capabilities/competences Resources are the assets that organisations have or can call upon (e.g. from partners or suppliers) ‘what we have’
Competences are the ways those assets are used or deployed effectively, that is, the way in which an organisation generates value from its resources ‘the way we do things’ or ‘what we do well’
Resources and capabilities/competences
Johnson et al., 2017
In practice:
Threshold and distinctive • Threshold capabilities are those needed for an organisation to meet the necessary requirements to compete in a given market and achieve parity with competitors in that market - ‘qualifiers’ • Distinctive capabilities are those that critically underpin competitive advantage and that others cannot imitate or obtain – ‘winners’
Threshold and distinctive capabilities
Johnson et al., 2014
In practice:
Core competences • Core competences are the linked set of skills, activities and resources that together: – deliver customer value – differentiate a business from its competitors – potentially, can be extended and developed as markets change or new opportunities arise Hamel & Prahalad, 1990
• Provide sustainable competitive advantage, when all three criteria are met
In practice: Assess core competences‌
How strategic capabilities can enable building a competitive advantage VRIN* are the four key criteria by which capabilities can be assessed in terms of providing a basis for achieving sustainable competitive advantage are: –value, –rarity, –inimitability and –non-substitutability
*Barney suggested the VIRO framework – with the O being ‘organising capability’. Johnson and Scholes have evolved this framework.
VRIN: Value Strategic capabilities are of value when they: – take advantage of opportunities and neutralise threats, – provide value to customers – provide potential competitive advantage – at a cost that allows an organisation to realise acceptable levels of return
VRIN: Rarity • Rare capabilities are those possessed uniquely by one organisation or by a few others only – Patents, brands, talent
• Rarity can be temporary
VRIN: Inimitability • Inimitable capabilities are those that competitors find difficult to imitate or obtain • Competitive advantage can be built on unique resources (a key individual or IT system) but these may not be sustainable (key people leave or others acquire the same systems) • Sustainable advantage is more ofen found in competences (the way resources are managed, developed and deployed) and the way competences are linked together and integrated
Criteria for inimitability
Johnson et al., 2017
VRIN: Non-substitutability Competitive advantage may not be sustainable if there is a threat of substitution: – Product or service substitution from a different industry/market, postal services partly substituted by e-mail – Competence substitution, a skill substituted by expert systems or IT solutions
Is the capability…
• • • •
Valuable? Rare? Inimitable? Non-substitutable?
Answers ‘Yes’ mean increasing basis for sustainable competitive advantage
Dynamic capabilities! Dynamic capabilities are an organisation’s abilities to renew and recreate its strategic capabilities to meet the needs of a changing environment
Dynamic capabilities! “Dynamic capability is the competence to build new competences”
Danneels, 2008, p.519
• • • •
WHY? Because… marketing environments change companies need to change resources are adding, changed, deleted new competencies need to be developed
Redundant capabilities • Capabilities, however effective in the past, can become less relevant as industries evolve and change. • Such ‘capabilities’ can become ‘rigidities’ that inhibit change and become a weakness. Johnson et al., 2017
Techniques for assessing strategic capability
1. Value chain/ Value network
2. Benchmarking
1. Value Chain A value chain describes the categories of activities within and around an organisation, which together create a product or service. Johnson et al., 2017
Value Chain PRIMARY ACTIVITIES •
•
• • •
Inbound logistics – receiving, storing & distributing inputs to products/service e.g. materials handling, stock control, transport Operations – transforms inputs into final products/services e.g. machinery, packaging, assembly Outbound logistics – collect, store, distribute product to customers e.g. warehousing Marketing & Sales – sales admin, selling, promotion Service – activities that enhance the value of the product e.g. installation, repair, training Each of these are ‘linked’ to Support Activities
SUPPORT ACTIVITIES – these help to improve the efficiency or effectiveness of primary activities
• Procurement – process for acquiring the various resource inputs, occurs all over the organisation e.g. staff recruitment, office equipment, company cars, external suppliers • Technological development – know how – may be concerned with product or processes, fundamental to innovation • Human Resources – across all primary activities – people management e.g. training • Infrastructure – systems of planning finance, structures & routines of the organisation
In practice:
Value Chain
FIRM INFRASTRUCTURE HRM TECHNOLOGY DEVELOPMENT PROCUREMENT
Clothing & trim design; Fabric sourcing Internal comms IT Outsourcing
Staff training Website
Store acquisition
Warehouse Retailing Collateral In-store Delivery & graphics & Store & Logistics experience PR
Returns & complaint handling
INBOUND OPERATIONSOUTBOUND MARKETING SERVICE LOGISTICS LOGISTICS AND SALES
Uses of the value chain • A generic description of activities – understanding the discrete activities and how they both contribute to consumer benefit and how they add to cost. • Identifying activities where the organisation has particular strengths or weaknesses • Analysing the competitive position of the organisation using the VRIN criteria – thus identifying sources of sustainable advantage. • Looking for ways to enhance value or decrease cost in value activities (e.g. outsourcing)
In practice:
“Both our online and bricks-and-mortar stores are seamlessly connected, driven by platforms such as mobile payment, and other technological initiatives that we will continue to develop�.
Pabla Isla, Inditex CEO
2. Benchmarking • Historical benchmarking • Industry/sector benchmarking • Best-in-class benchmarking “On a scale of 0-10, how likely is it that you would recommend a friend or colleague to our company?” 0
1
Detractors
2
3
4
5
6
7
Neutral
8
9
Promoters
10
Developing strategic marketing capabilities
Wang & Ahmed, 2007
Developing strategic capability 1. Internal capability development: • Leveraging capabilities – identifying capabilities in one part of the organisation and transferring them to other parts (sharing best practice) • Stretching capabilities - building new products or services out of existing capabilities
Developing strategic capability 2. External capability development – adding capabilities through mergers, acquisitions or alliances 3. Ceasing activities – non-core activities can be stopped, outsourced or reduced in cost 4. Monitor outputs and benefits – to understand sources of consumer benefit and enhance anything that contributes to this 5. Managing the capabilities of people – training, development and organisation learning
In practice: Developing strategic capabilities Volvo outsources IT to HCL Technologies, India • In-house IT capability moved to HCL, India • Preparing for the Cloud, Big Data & IoT • Updating internal processes • Cultural fit between Volvo and HCL • Significant change
• Strategic development based on assessment of capabilities and value chain • Updating capabilities and dynamic capabilities • Response to a dynamic environment • Example of collaboration
References • Barney, J., 1991. ‘Firm resources and sustained competitive advantage’, Journal of Management, 17 (1), 99–120 • Danneels, E., 2008. ‘Organisational antecedents of second-order competences’ Strategic Management Journal, 29, 519-543 • Hamel, G. & Prahalad, C.K., 1990. ‘The core competence of the corporation’, Harvard Business Review, 68 (3), 79–91. • Hooley, G., Saunders, J., Piercy, N. and Nicoulaud, B., 2012. Marketing Strategy and Competitive Positioning, 5th ed. London: FT Prentice Hall. • Hunt, S.D. & Derozier, C., 2004. ‘The normative imperatives of business and marketing strategy: grounding strategy in resource-advantage theory’, Journal of Business & Industrial Marketing, 19 (1), 522 • Johnson, G., Whittington, R., Scholes, K., Angwin, D. and Regner, P., 2014 Exploring Strategy, 10th ed. London: Pearson Education. • Porter, M., 1980. Competitive Strategy. New York: Free Press • Porter, M.E., 1985. Competitive Advantage: Creating and sustaining superior performance. New York: Free Press • Teece, D.J., 2007. ‘Explicating dynamic capabilities: The nature and micro-foundations of (sustainable) enterprise performance’, Strategic Management Journal, 28 (13), 1319-1350. • Wang, C.L. & Ahmed, P.K., 2007. ‘Dynamic capabilities: A review and research agenda’ International Journal of Management Reviews, 9(1), 31-51.